Advertisement

How do the changes to the pensions system affect you?

The Coalition claims women are set to get a much better deal in retirement. Photo: John Stillwell/PA Wire

What will today's proposals change?

The Coalition's proposals, due to come into effect in 2017, will establish a single weekly flat-rate, equivalent to around £144 in today's money and based on 35 years of National Insurance contributions.

The single payment will replace today's complex system of add-ons and means-testing, which can net a pensioner up to £142.70 (an increase from the current full pension of £107.45).

Prime Minister David Cameron earlier told Daybreak the planned increase unveiled in today's White Paper would be paid for by people working longer through life.

Who stands to gain from the proposals?

Women, low earners and the self-employed will "hugely benefit" from the Government's planned changes to the state pension, according to ministers. They say mothers who halt their working lives to raise a family will no longer be hindered by the pensions system.

The self employed will be "unequivocally better off", the Institute for Fiscal Studies (IFS) has said, as they do not qualify for the second pension payment.

The means-testing section of the current scheme also deters thousands of people from claiming extra money they are entitled to in retirement. That won't occur with a flat-rate payment. Ending testing also limits the cost of bureaucracy in the pension system.

Who will be worse off?

Most people in the long run, according to IFS director Paul Johnson. He said the total money for retirees in the future under the new scheme will prove to be less than is currently available to many through the second pension payment.

Mr Johnson pinpointed those born after 1980 as a group who will receive a smaller retirement pot than under current arrangements, despite the system's structure being simplified.

Under the proposals, around six million workers will face higher National Insurance payments as the practice of "contracting out" the state second pension to employers is ended.

A million private sector staff enrolled in final salary schemes and an estimated five million public sector workers are likely to be affected.